Markets tumble worldwide, bear market growls on Wall Street

Some traders are even speculating the Fed on Wednesday may raise its key short-term interest rate by three-quarters of a percentage point.

Wall Street is tumbling even more Monday, sending the S&P 500 down more than 20% from its record, on worsening fears about a possible recession given how stubborn inflation has become.

The S&P 500 was 3.3% lower in investors' first chance for trading after getting the weekend to reflect on the stunning news that inflation is getting worse, not better. The Dow Jones Industrial Average was down 738 points, or 2.4%, at 30,653, as of 10:30 a.m. Eastern time, and the Nasdaq composite was 3.9% lower.

The center of Wall Street's focus was again on the Federal Reserve, which is scrambling to get inflation under control. Its main method is to raise interest rates in order to slow the economy, a blunt tool that risks a recession if used too aggressively.

Some traders are even speculating the Fed on Wednesday may raise its key short-term interest rate by three-quarters of a percentage point. That's triple the usual amount and something the Fed hasn't done since 1994. Traders now see a 30% probability of such a mega-hike, up from just 3% a week ago, according to CME Group.

No one thinks the Fed will stop there, with markets bracing for a continued series of bigger-than-usual hikes. Those would come on top of some already discouraging signals about the economy and corporate profits, including a record-low preliminary reading on consumer sentiment that was soured by high gasoline prices.

It's all a whiplash turnaround from earlier in the pandemic, when central banks worldwide slashed rates to record lows and made other moves that propped up prices for stocks and other investments in hopes of juicing the economy.

Such expectations are also sending U.S. bond yields to their highest levels in years. The two-year Treasury yield shot to 3.23% from 3.06% late Friday, its second straight major move higher. It's more than quadrupled this year and touched its highest level since 2008.